TaxTMI 
TaxTMI 
2023 (11) TMI 442
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....t of Rs. 11,73,19,373/- was in the nature of Suppliers' credit/ provisions and NOT 'cash credit' and hence Sec. 68 had no application. 4. The Ld. CIT(A) failed to appreciate that the amount of Rs. 11,73,19,373 was adjusted in the subsequent years by way of share purchase agreement." 3. Serco India Private Limited was a subsidiary of Serco Group PLC, UK, incorporated in India on 27-02-2006. The company was established as a captive service center with an objective to provide IT and IT enabled services to Serco Group. The assessee company filed its return of income for Assessment Year 2013-14 on 29.11.2013 declaring loss of Rs. 5,68,34,642/- which was processed u/s 143(1) of the Income Tax Act, 1961. 4. The assessment was completed u/s 143(3) of the Act vide order dated 15.12.2016 wherein addition u/s 68 of Rs. 11,73,19,373/- was made on account of difference between the opening balance and closing balance of sundry creditors, and ad-hoc disallowance of Rs. 4,43,77,875/- was also made on account of 20% of net 'other expenses' of Rs. 22,18,89,377/- debited in profit & loss account. The assessee company preferred an appeal before Ld. CIT(A), who has decided the appeal vid....
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....-2012. From the F.Y. 2013-14, the assessee company has maintained and operated BRT buses in Indore and has not provided IT or IT enabled services to Serco Group. As the assessee company could not obtained more contracts for Maintenance and Operations of road transportation or metro rail despite incurring huge expenditure on manpower and other expenses and incurring losses. 10. It is relevant to note that the Board of Directors of the company in its resolution dated 27th August 2014 has decided to close down the operations of the company in the foreseeable future (as mentioned in Note No. 1(h) of Notes forming part of financial statements for the year ended 31st March 2014) (PB Volume-2 Page 974). Thereafter, all the shares of the assessee company were sold to M/s Travel Time Car Rental Private Limited and M/s Mahalaxmi Automotives Private Limited by Serco Group vide Share Purchase Agreement executed on 1103-2015 (PB Volume-1 Pages 661 to 704). Thus, the management & control of the assessee company was taken over by M/s Travel Time Car Rental Private Limited and M/s Mahalaxmi Automotives Private Limited from Serco Group in March 2015. 11. The Assessing Officer made a reference....
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....sent management of the assessee company again requested the earlier management, Serco Group UK to provide the necessary documents so that the assessee company can represent the case properly before the Ld. CIT(Appeals) but Serco Group UK has not provided the relevant documents, inter-alia, stating in the mail dated 20-01-2017 that "Your requests in respect to the above have come to the attention of the internal legal team and, as you can appreciate, we are sensitive to the disclosure of data to third parties." (PB Volume-1 Page 9). Thus, despite repeated mails, Serco Group UK has not provided the relevant documents. 15. During the appellate proceedings before the Ld. CIT(Appeals), the assessee company gathered documents in the form of copy of agreements, lease deeds, some invoices and copy of bank statement of the relevant period evidencing payments against expenses and TDS certificates and furnished before the Ld. CIT(Appeals) (PB Volume-1 Pages 10 to 551) with the request to admit the same under rule 46A of the Income Tax Rules 1962 as the assessee was prevented by sufficient cause from producing these evidences before the Assessing Officer which are relevant to grounds of app....
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....8,427 Non Operating Income- Total 7,56,62,520 3,34,019 7,59,96,539 7,59,96,539 Operating income 30,77,03,607 " - 30,77,03,607 30,77,03,607 Total Income 30,77,03,607 7,56,62,520 3,34,019 38,37,00,146 38,37,00,146 Total Cost Personnel Expenses 15,07,08,871 4,85,98,973 19,93,07,844 19,93,07,844 Administrative and other expenses 11,54,81,465 7,49,61,474 3,35,22,112 22,39,65,051 22,39,65,051 Finance Cost - - 1,81,59,294 1,81,59,294 1,81,59,294 Depreciation 15,72,440 24,97,743 15,64,559 56,34,741 56,34,741 Operating Cost 26,77,62,775 44,70,66,930 Total Cost 26,77,62,775 7,74,59,217 10,18,44,938 44,70,66,930 44,70,66,930 Profit Before Tax 3,99,40,832 (17,96,697) (10,15,10,919) (6,33,66,7....
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....f charging a mark-up of 15% to the said expenditure. 23. Further, the assessee has explained before the ld. CIT(A) that globally Serco Group is into the transport business to a large extent. The assessee Serco India was also looking out for similar kind of contracts/projects. The assessee has invested time and efforts to get similar kind of projects in India. These expenses were purely incurred for marketing activity, bidding for new projects etc. and these include salary & wages, allowances of marketing staff allocated for the purpose, hotel cost, conference fees, marketing expenses etc. These expenses were purely incurred to generate new business and to get new projects. Hence, these expenses were incurred for the business of the assessee. 24. After examination of the details filed, not satisfied with the submissions, the Ld. CIT(A) made disallowance of expenses of Rs. 10,18,44,938/- as under: 1. Personnel expenses Rs. 4,85,98,937 2. Administrative and other expenses Rs. 3,35,22,112 3. Finance cost Rs. 1,81,59,294 4. Depreciation Rs. 15,64,559 Total Rs. 10,18,44,938 25. The Ld. CIT(A) mainly observed that these expenses....
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....ind that the Ld. CIT(A) has not properly appreciated the facts of the case and disallowed the expenses under various heads on irrelevant facts. It is pertinent to note that for rendering management consultancy services to its AEs, as per the agreement, the assessee charged mark-up of 15% on the "operating expenses" directly attributable to the services rendered. 30. We also observed that an organization incurs both operating expenses as well as non-operating expenses for running the business. There are certain expenses which are not allocable to a particular activity. Non-allocable expenses even for a management consultancy providing company are costs that cannot be directly attributed to specific projects or client engagements and therefore cannot be allocated on a project-byproject basis. These expenses are more general in nature and are incurred to support the overall operations of the company rather than any particular client work. Some examples of non-allocable expenses that a management consultancy company normally incur: (i) Administrative Salaries: Salaries of employees who handle administrative tasks such as human resources, accounting, finance, and general off....
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....83 3661349 Finance Expenses - 560422 6,63,858 1224280 Total 7,87,89,866 6,92,00,878 14,11,42,778 28,91,33,522 Percentage 27% 24% 49% 100% F.Y. 2011-12 (A.Y. 2012-13) ITES - Segment Management Services Other - Non allocated Total Personnel Expenses 2,39,01,784 10,21,91,892 4,62,81,722 17,23,75,398 Percentage 14% 59% 27% 100% Administrative and other expenses 2,38,78,369 6,48,51,085 10,32,10,511 19,19,39,965 Percentage 12% 34% 54% 100% Depreciation - 18,76,632 34,87,532 53,64,164 Finance Expenses - 1962263 1,13,41,858 1,33,04,121 Total 4,77,80,153 17,08,81,872 16,43,21,623 38,29,83,648 Percentage 12% 45% 43% 100% F.Y. 2012-13 (A.Y. 2013-14) Management Services Other - Non allocated Total Personnel Expenses 15,07,08,871 4,85,98,973 19,93,07,844 Percentage 76% 24% 100%, Administrative and other expenses 11,54,81,465 10,84,83,586 22,39,65,051 Percentage 52% 48% ....
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....elated to Indore BRT Bus Operations and Maintenance of 50 buses for an initial period of six years. 36. Hence, it is hereby held that the CIT(A) was not justified in disallowing non-operating non-allocated expenses and expenses incurred for exploring new business in the line of Maintenance and Operations of Transportation by the assessee. 37. Having held so, we find it relevant to discuss each disallowance of expenses made by the Ld. CIT(A) hereinunder: Personnel Expenses of Rs. 4,85,98,973/-: 38. The Ld. CIT(A) has disallowed Rs. 4,85,98,973/- out of personnel expenses mainly observing that there was a marginal increase in salary and wages from Rs. 15,66,32,538/- in F.Y. 2011-12 to Rs. 17,74,23,534/- in F.Y. 2012-13 and further that the proposal for maintenance and operations of BRT bus services in Indore was floated by the Government Authorities and any such proposal of bidding does not require manpower or employees as claimed by the assessee for which the assessee would have paid Rs. 4,85,98,973/- and that there was no evidence of any such expenditure having been incurred on any other activity. 39. The marginal increase in salary & wages from earlier year that as ....
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.... businessmen to determine as to how much expenditure should have been incurred for the purpose of business. 45. In view of the above, we hold that the Ld. CIT(A) was not justified in disallowing total non-operating and non-allocable personnel expenses of Rs. 4,85,98,973/-. Administrative and other expenses of Rs, 3,35,22,112/-: 46. The Ld. CIT(A) has disallowed Rs. 3,35,22,112/- out of Administrative and other expenses as against disallowance of Rs. 4,43,77,875/- made by the Assessing Officer. Ld. CIT(A) observed that the assessee did not furnish evidence regarding the genuineness of the claim that these expenses were at all incurred or were related to particular business activity other than the management consultancy services being provided to the AEs. 47. It was argued that the Ld. CIT(A) were not justified in making disallowance out of "other expenses" on the grounds that the assessee did not furnish any evidence regarding genuineness of these expenses. The assessee submitted that proceedings before the Ld. CIT(A), they have furnished details of other expenses along with Name, Address, and PAN of the Parties, Amount paid, TDS deducted, copies of Form No. 16A, copy of....
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.... The assessee company has obtained inter-corporate deposit from its related party Serco BPO India Private Limited in earlier years and paid interest @12% during the year at Rs. 1,61,40,274/-. These funds were utilized for business purposes. (b) Interest on Finance Lease of Rs. 20,19,020/- The assessee had entered into finance lease with OAIS Auto Financial Services Ltd. for the cars taken on finance lease and has incurred interest expense of Rs. 20,19,020/-. These cars were used for general business purposes of the company. Depreciation of Rs. 15,64,559/-: 52. The Ld. CIT(A) disallowed non-allocable depreciation of Rs. 15,64,559/- observing that the assessee has merely filed consolidated depreciation schedule pertaining to total assets owned by the company and the allocation of depreciation pertaining to management services being provided to the AEs was not genuine. 53. It was submitted that depreciation allocable to the main segment of rendering management consultancy services was allocated at Rs. 15,72,440/- and to sub-letting segment of Rs. 24,97,743/- out of total depreciation as per books of Rs. 56,34,741/-. The balance depreciation of Rs. 15,64....
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....ghting in the bank account statement of subsequent financial year (refer PB Voulme-1 Pages 554 to 557 and Pages 769 to 785) along with copies of TDS certificates wherever applicable. It was explained that trade payables to M/s Serco UK (Inter-corporate payables) was on account of reimbursement of part-salary of assessee's expatriate employees paid by Serco UK on behalf of the assessee. The assessee has also furnished evidence regarding payment of trade payables on 26.02.2015 and furnished copy of Form No. 15CA along with relevant copy of bank account statement (refer PB Volume-1 Pages 552 & 553 and 709 to 712; PB Volume- 2 Pages 806, 807 & 843). 59. The Ld. CIT(A) confirmed the addition u/s 68 of the Act of Rs. 11,73,19,373/- made by the AO observing that no supporting evidence to prove the genuineness of credit balance was furnished by the assessee. He further noted that as per the agreement between the assessee and its AEs to which the assessee had provided services, the expenses were reclaimed by the assessee on cost plus basis with a markup factor of 15%. In these circumstances any salary payable to expats was recoverable by the assessee with a markup factor of 15%. There is....
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.... UK. The assessee company had also entered into a Salary Reimbursement Agreement with Serco UK in January 2010 (PB Volume-3 Pages 1120 to 1125). As per this agreement, for administrative convenience only and at the request of the assessee company, Serco UK agreed to pay to Serco India employees' part of salary in foreign currency on behalf of Serco India. The foreign currency salary paid by Serco UK to assessee's employees on behalf of the assessee shall be reimbursed by the assessee to Serco UK on cost-to-cost basis. Accordingly, Serco UK has been paying part salary to the expatriate employees recruited by the assessee company and it was payable as reimbursement of salary to Serco UK. It may also be pertinent to mention that salary reimbursement payable to Serco UK has been shown regularly by the assessee as international transaction between AE in the TP Reports and has been examined by the TPO. Thus, the observation of the Ld. CIT(A) that the assessee was providing services to its AEs on cost plus mark-up of 15% and there should be no liability in the hands of assessee for salary payable to expats to its AE is not based on proper appreciation of facts of the case. It may be noted....